Zacks Analyst Blog Highlights: Comerica Incorporated, Sterling Bancshares, Citigroup, Forest Laboratories and Ironwood Pharmaceuticals

CHICAGO, Jan. 19, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Comerica Incorporated (NYSE: CMA), Sterling Bancshares Inc. (Nasdaq: SBIB), Citigroup Inc. (NYSE: C), Forest Laboratories, Inc. (NYSE: FRX) and Ironwood Pharmaceuticals, Inc. (Nasdaq: IRWD).

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Here are highlights from Tuesday's Analyst Blog:

Comerica Beats on Higher Net Margin

Comerica Incorporated (NYSE: CMA) reported fourth-quarter 2010 net income of 53 cents per share, surpassing the Zacks Consensus Estimate of 31 cents and prior quarter figure of 33 cents. However, earnings saw a striking year-over-year improvement from a loss of 42 cents.

Results reflected the increase in net interest income, non interest income and net interest margin, offset by higher non-interest expenses. Further, a significant improvement in credit quality also acted as a positive catalyst.

Net income attributable to common shareholders of Comerica totaled $95 million, compared with a net loss of $62 million in the fourth quarter of 2009 and net income of $59 million in the third quarter of 2010. Reported net income included a provision of $57 million for loan losses compared to $122 million in the prior quarter.

For full fiscal 2010, the company reported net income of 88 cents per share compared to net loss of 79 cents in the prior year. The net income compared favorably with the Zacks Consensus Estimate of 62 cents per share. Net income was $153 million, significantly higher than the net loss of $118 million reported in the prior year.

Performance in Detail

Net interest income improved approximately 2.3% year over year to $405 million in the fourth quarter of 2010. Moreover, it compared favorably with $404 million recorded in the prior quarter, attributable to an increase in net interest margin. For the full year, net interest income increased 5.0% year over year to $1,646 million.

On the flip side, in the fourth quarter, non interest income remained approximately flat year over year at $215 million, but increased 15.6% sequentially. For fiscal 2010, non interest income fell $261 million year over year to $789 million, due to decreased service charges on deposit accounts and fiduciary income partially offset the increases in commercial lending fees, card fees and letter of credit fees.

Total revenue in the quarter was $620 million, well above the Zacks Consensus Estimate of $591 million. For the full year, total revenue was $2,435 million, surpassing the Zacks Consensus Estimate of $2,408 million.

Net interest margin increased 35 basis points year over year to 3.29% in the quarter. Sequentially, it increased 6 basis points. For fiscal 2010, margin increased 52 basis points year over year to 3.24%, mainly attributable to changes in the funding mix, including a continued shift in funding sources toward lower-cost funds, and improved loan spreads.

Non-interest expenses during the fourth quarter totaled $437 million, up 2.8% year over year and 8.7% sequentially. The increase was principally driven by an increase expenditures on salaries and employee benefits, advertising and other non-interest spending, partially offset by a decline in the provision for credit losses on lending-related commitments, legal fees and other real estate costs.

For the full year, expenses totaled $1,640 million, down 0.6% year over year, mainly reflecting decreases in FDIC insurance expense, pension expense and other real estate expense, partially offset by an increase in salaries expense.

Credit Quality

Provision for loan losses of Comerica during the quarter fell a whopping 78.0% year over year to $57 million and declined 53.0% sequentially. Lower provision was the result of a decline in the Middle Market, Private Banking, Commercial Real Estate and Leasing business lines, partially offset by increases in the Global Corporate Banking and Personal Banking business lines. For 2010, provision for loan losses decreased by $602 million year over year to $480 million.

Net credit-related charge-offs decreased $19 million sequentially to $113 million in the reported quarter. The decrease was mainly aided by a decline in Middle Market and Commercial Real Estate business lines, which was partially offset by an increase in Global Corporate Banking and Private Banking. For 2010, net credit-related charge-offs decreased $305 million to $564 million.

The company's non-performing loans declined 5.0% year over year from $1,181 million and 5.7% sequentially to $1,123 million.

Moreover, Comerica's non-performing assets decreased 4.4% year over year and 5.8% sequentially to $1,235 million as of December 31, 2010.

Overall, a significant improvement in credit quality was recorded, which led to a decrease in net charge-offs, provision for credit losses, non-performing assets and non-performing loans.

Balance Sheet Position

As of December 31, 2010, total assets and common shareholders' equity were $53.7 billion and $5.8 billion, respectively, compared to $55.0 billion and $5.9 billion, respectively, as of September 30, 2010. Comerica's tangible common equity ratio was 10.54% compared with 10.39% as of September 30, 2010. The estimated Tier 1 capital ratio was 10.08%, up from 9.96% as of September 30, 2010.

Share Repurchase and Dividend

In the reported quarter, Comerica doubled the quarterly dividend to 10 cents per share. Further, the company authorized the repurchase of up to 12.6 million shares of common stock in the open market and the purchase of outstanding warrants of up to 11.5 million shares of common stock.

Guidance for Fiscal Year of 2011

Management expects non-interest income to fall by a single digit year over year, significantly due to the impact of regulatory changes.

Management also projects a low single-digit increase in non-interest expenses compared with the prior year. The projection includes an increase in employee benefits expense.

For fiscal 2011, net interest margin is guided to be in line with the 2010 level, assuming no increase in the Federal Funds rate.

Management estimates net credit-related charge-offs in the range of $350 million and $400 million, and provision for credit losses between $150 million and $200 million.

Acquisition of Sterling Bancshares

Concurrent with the fourth quarter 2010 earnings release, Comerica announced that it will acquire Sterling Bancshares Inc. (Nasdaq: SBIB) in a stock-for-stock transaction. The strategic acquisition will augment Comerica's growth in Texas and the capital strength.

Under the terms of the agreement, each outstanding share of Sterling common stock will be exchanged for 0.2365 shares of Comerica common stock upon closing. The acquisition has been approved by the boards of Comerica and Sterling and is expected to be completed by mid 2011.

Performance by Peers

In Comerica's peer group, Citigroup Inc. (NYSE: C) reported positive results but missed the Zacks Consensus Estimates. Moreover, the results compared unfavorably with the prior quarter due to a slowdown in revenue and net income.

Our Take

Comerica's strategic expansion efforts and focus on cost containment augur well to some extent. The solid balance sheet and liquidity position has helped the company to repay bailout money and dispose of preferred securities.

However, its significant exposure to riskier areas, such as commercial real estate markets, lack of loan growth and the regulatory moves that would restrict its fee income growth, are downsides. Nevertheless, the dividend increase and the share buybacks inspire investors' confidence on the stock.

Comerica currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining a long-term Neutral recommendation on the stock.

Forest Labs Impresses Again

Forest Laboratories, Inc. (NYSE: FRX) reported earnings per share of $1.34 for the third quarter of fiscal 2011, easily beating the Zacks Consensus Estimate of 99 cents and the year-earlier earnings of 97 cents. Results were boosted by strong Namenda sales, lower expenses and lower share count. Including one-time items, earnings came in at $1.11 per share.

Third quarter revenues increased 5.8% to $1.13 billion, with net sales increasing 6.7% to $1.06 billion. Total revenues topped the Zacks Consensus Estimate of $1.09 billion. While contract revenues slipped 16.1% to $46.8 million, interest income declined 2.8% to $7.1 million.

The Quarter in Detail

Third quarter product revenues increased 6.7% to $1,063.9 million. Forest Labs reported that it continued to see strong growth for Bystolic and Savella. While Lexapro revenues increased slightly (up 0.7%) to $586.5 million, Namenda, which is approved for the treatment of moderate and severe Alzheimer's disease, delivered sales of $319.8 million, recording a growth of 13.2% from the year-earlier period.

Improved patient access and increased promotional efforts should help keep Namenda sales strong. Moreover, Forest Labs gained US Food and Drug Administration (FDA) approval in June 2010 for Namenda XR, a 28 mg once-daily extended-release formulation. Namenda XR received approval for the treatment of moderate to severe dementia of the Alzheimer's type.

Bystolic, Forest Labs' beta-blocker for the treatment of hypertension, posted sales of $68.1 million, up 43.4%.

Savella, which is approved for the management of fibromyalgia, posted sales of $24.6 million, up significantly from the year-earlier sales of $15.4 million. Sales are being driven by the company's promotional efforts.

Savella was launched in late April 2009. We believe the product may have multi-hundred million dollar potential. In early October 2010, Savella was moved into tier II unrestricted coverage on several managed care organizations. Improved formulary access should help boost sales. Forest Labs entered into a collaboration and distribution agreement with Janssen to commercialize Bystolic and Savella in Canada.

Contract revenue declined 16.1% to $46.8 million due to a 17.1% drop in Benicar co-promotion income. Under its agreement with Daiichi Sankyo, Forest Labs is now receiving a gradually declining royalty rate on Benicar until the end of March 2014.

Adjusted selling, general and administrative expense declined 6.9% to $285.7 million. The company continues to focus on promoting its currently marketed products, especially Savella and Bystolic. The launch of Teflaro, which gained approval in late October 2010, could lead to an increase in SG&A spend. Adjusted research and development spend declined 15.1% during the quarter.

Guidance Raised Again

Following the release of third quarter results, Forest Labs once again revised its earnings guidance for fiscal 2011. The company now expects earnings in the range of $4.20 - $4.30 per share, up from its earlier guidance of $3.80 - $3.90. The Zacks Consensus Estimate for fiscal 2011 currently stands at $3.88 per share, well below the new guidance issued by the company.

The guidance excludes charges related to the settlement with the US Department of Justice, the upfront licensing payments to TransTech Pharma and Gruenenthal. Guidance, however, includes the impact of the company's accelerated share repurchase program.

Upcoming Catalysts

Forest Labs remains on track to file for approval of two pipeline candidates, linaclotide and aclinidinium, in 2011. The company along with its partner, Ironwood Pharmaceuticals, Inc. (Nasdaq: IRWD), reported positive top-line results from a 26-week phase III study on linaclotide in early November 2010. With positive data from two phase III irritable bowel syndrome with constipation (IBS-C) trials and two phase III chronic constipation trials, the companies are looking to file a NDA for both indications in the third quarter of calendar year 2011.

Meanwhile, earlier this year, Forest Labs and Almirall announced positive top-line data on their chronic obstructive pulmonary disease (COPD) candidate, aclidinium bromide. The companies are on track to file for regulatory approval of aclidinium in both the US and the EU in mid-2011.

Aclidinum's approval would be a major boost for Forest Labs. The COPD market represents huge commercial potential - according to the World Health Organization (WHO), about 210 million people suffer from COPD across the world. We note that Forest Labs is currently seeking FDA approval for another COPD candidate, Daxas.

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